Transport stocks fall off the rails – and that could be a warning for all investors

Transportation stocks took a sizable hit after United Parcel Service issued quarterly earnings that came in below analysts' expectations Tuesday, and such moves in the larger transport space could signal larger-scale economic worry ahead for investors.

So go transport stocks, so goes the economy, according to classic Dow theory, given the breadth of goods shipped across rails and airplanes. Indeed, the UPS results could indicate some sort of economic "slowdown," according to BK Asset Management's managing director of foreign exchange strategy Boris Schlossberg.

In addition to reporting earnings that missed expectations, the company also reduced guidance. In a press release, UPS's chief financial officer said earnings "were challenged by a shift in product mix and the continued softness in industrial production."

"Yes, Amazon is doing a lot of volume for them, but the rest of the economy may not be producing as much as everybody thinks," Schlossberg said Tuesday on CNBC's "Trading Nation."

"And that could be a tell that growth going forward — the expectations for growth going forward — need to be tempered, and that could be an interesting early warning sign for investors,"

"Right now I'm taking the warning sign seriously," he added.

The overall Dow Jones transportation average fell about 1.5 percent on Tuesday, and extended those losses in Wednesday trading. In fact, this week is proving to be the worst for the transport stocks in more than a year.

Still, Oppenheimer head of technical analysis Ari Wald opined that "UPS really should be a tell for the overall market; actually it has been an under-performing stock for a number of years, really not representative of transports overall."

Examining a chart of the Dow Jones transportation average, Wald said that the group has "run up a lot," and is due for consolidation around its 2015 peak.

"That's resistance; hasn't been able to push through, does suggest we are due for some sort of a pause to refresh the trend," Wald said Tuesday on "Trading Nation," adding that "many times these corrections can be played out through time, not necessarily by lower prices."

The trend remains bullish for transports, Wald said, and he would recommend buying pullbacks as he sees technical breakouts in the cards this year.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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